What if NAR went away? Examining the catastrophic potential


Commission In Article 2

May is Commission and Compensation Month here at Inman. We’ll sort through the noise and misinformation and provide you with the most up-to-date facts and strategies about how to prosper in the wake of the commission settlements. And look for straight-to-your inbox updates with Inman’s new weekly digest, Commission Chronicles.

The National Association of Realtors (NAR) has long been a pillar of stability and standardization within the U.S. real estate industry. However, the ongoing antitrust settlement lawsuits have struck a formidable blow to this venerable institution that was already struggling with significant public relations issues throughout the past year, including a sexual harassment scandal, a revolving door of leaders and its handling of the commission lawsuits and settlement.

Although dissatisfaction about NAR and its fees has always existed, vocal dissent has escalated, with thousands contemplating or threatening to leave NAR. It’s hard to argue that NAR’s decline, if it happens, would be largely self-inflicted. After all, it is NAR that experienced the scandals and that made the rules that are the subject of the suits.

I would argue, however, that the potential decline of NAR could be nothing short of catastrophic, setting back the industry nearly a century and necessitating a complete rebuild of every aspect as we know it. Here’s what would happen if NAR did dissolve and how many areas of our economy and business sector could be impacted.

NAR is villanized

While being cast in a dubious light by the Department of Justice, courts and media, NAR’s invaluable contributions to the industry are being overlooked. The government’s punitive actions against NAR might even be seen as self-sabotage.

For nearly 116 years, NAR has assumed roles typically held by government agencies: crafting a comprehensive code of ethics, developing standardized forms and establishing mechanisms that have shaped every facet of the residential market.

The standardizations set forth by NAR have created a level playing field for all market participants. The cost of a seller paying a buyer’s agent commission, for example, is minuscule compared to the incalculable cost of doing business in the unregulated industry that would exist without NAR’s influence.

NAR’s previous requirements, such as mandating buyer’s agent commissions within MLS listings, have not only cost NAR hundreds of millions of dollars but have also financially impacted its largest brokerage members.

With brokerages bearing such high costs for playing by NAR’s rules, the motivation to remain affiliated with NAR is under scrutiny. In several settlements, major franchisers, including Anywhere and RE/MAX, have allowed their offices to opt out of NAR affiliation if they choose, signifying profound implications.

The underappreciated impact of NAR

The decline of NAR would unleash turmoil across every aspect of the residential industry. Consider the following:

  • Lobbying impact: In recent years, NAR has ranked the No. 1 organization in lobbying spending in the United States. The dissolution of this lobbying force could inflict generational damage on homeownership rights.
  • Ethical standards: The code of ethics, upheld and enforced through local Realtor associations, holds Realtors to much higher standards than legal requirements alone. Without these enforced standards, the industry might see a rise in legally permissible but ethically questionable practices.
  • Standardization of forms: Realtor associations in each state create and maintain standardized, copyrighted forms exclusively for their members. Without such standardization, the industry could face legal disarray, escalating the need for attorneys and inflating transaction costs.
  • Listing data reliability: Although MLS access might remain open without NAR membership, the elimination of standardized buyer agent commissions could lead to the emergence of competing real estate databases, fragmenting data nationwide.
  • Training and education: The training and education provided by NAR are critical; without it, the industry faces a significant void, leaving agents unprepared and untrained.
  • Market data and analysis: NAR provides detailed reports on housing trends and affordability, which are crucial for informing buyers, sellers and policymakers. A decline in NAR’s capacity could lead to less informed decisions and a potentially more volatile market.

The rise of competing associations

Although competing associations might try to fill the void left by NAR, they are more likely to further fracture the industry, creating a bewildering array of new business practices. To present as true rivals, these competitors would need to perform all of the functions of NAR previously mentioned, creating countless redundancies and contradictions.

These associations will compete not only for members but also for staff, technology and resources. The potential for undercutting prices to increase membership could result in diminished benefits for all associations.

Moreover, misaligned lobbying and advocacy efforts could render these efforts less effective compared to those of NAR. Agents who need or want to have access to the resources of multiple associations will bear the cost, which will certainly be higher than the cost of NAR alone. Competitors may arise, but will likely fail in every aspect except for creating more confusion. 

Government intervention and oversight

If you think NAR has messed things up, just wait until the government intervenes. If NAR’s influence were to significantly decline, the government would likely need to step in to replace many of the functions that NAR has provided for over a century, from transaction protocols to ethical guidelines.

To safeguard all parties involved in real estate transactions and ensure compliance with state laws, it would be necessary to develop standardized forms or, at a minimum, establish statutory-required language for contracts. Local municipalities might also want to ensure that local requirements are incorporated into real estate contracts. Government participation would become normalized, thereby creating a constantly changing landscape of legal nuances. 

Without the oversight of NAR, it would likely lead to increased governmental oversight and regulations, with state real estate commissions taking on drastically expanded roles. Ethics issues, previously handled through local Realtor associations, would need to be managed by state disciplinary actions, potentially backlogging the government with cases they have never handled before.

Everyone beware

With the decline of NAR, the residential market could become more similar to the commercial market, notorious for its lack of standardization. A simple “buyer beware” warning would be inadequate — sellers, buyers and agents alike would need to exercise greater caution.

The dubious and seemingly unfair practices that are seen in the commercial sector might become prevalent in residential real estate, potentially eroding the industry’s integrity and reputation.

In this future hypothetical scenario, being a Realtor member could become a mark of significant prestige, rather than the more commonplace, somewhat undervalued designation it is perceived as today.

The potential decline of NAR would destabilize the industry, leading to frequent conflicts between buyers, sellers and agents as disparate standards emerge. The long-term impact would be akin to turning back the clock: Without a central entity to provide reliable guidance, the industry would find itself in disarray, likely leading to increased government intervention as a last resort.

An existential threat to NAR is a threat to the real estate industry as a whole. Given that real estate contributes to nearly 17 percent of the country’s GDP, destabilizing this sector poses a significant threat to the entire economy. An attack on NAR by sellers, buyers, agents and the government is creating a self-inflicted wound that could result in immeasurable consequences.

While it may seem righteous to dismantle the institution that NAR has built, the collapse of NAR would equate to the collapse of the modern real estate market as we know it.

Sean Frank is the founder and CEO of Mainframe Real Estate in Florida. Connect with him on Instagram and LinkedIn.





Source link

About The Author

Scroll to Top